Vornado Realty Trust is ready to sell office towers and use the money to build apartments, a strategy shift likely to be cheered by those pushing for more housing around Penn Station.
“People really want to live in New York. There is a major shortage of apartments in New York,” CEO Steven Roth said in his annual letter to shareholders released late Tuesday. “So why aren’t we building some apartments? A very good question.”
Roth’s enthusiasm for residential development suggests he may be coming around to a proposal from Assemblyman Tony Simone to develop more high-rise housing around Penn Station. That proposal would scale back what Roth called his “promised land” – a plan to build around 18 million square feet of supertall office towers in the neighborhood, effectively another Hudson Yards. A spokesman for Roth declined to comment. The site Roth has in mind is across the street from Penn Station, a source said, but has not been envisioned for office development.
Vornado is New York’s second-largest commercial landlord, and most of the firm’s 20 million square-foot portfolio is Midtown office towers, including Penn 1 and 1290 Sixth Ave. The firm also developed the supertall apartment tower at 220 Central Park South and reaped $3.3 billion in proceeds from selling the units.
Roth said in his letter that there are no “sacred cows” in his portfolio and he would consider selling some but not all of his Manhattan office and retail space. He said he had a “short dialogue” with a potential bidder for an office tower in San Francisco. Two years ago he indicated he would sell a stake in the Farley Building, home to Meta Platforms.
He said in his letter that apartment buildings cost less to build and maintain than office towers, which he described as “capital hogs.”
Specifically, a 500,000 square-foot apartment building would cost $400 million less to build than an office tower and doesn’t require an anchor tenant to secure a construction loan. Maintaining an office building is more expensive, he said, because they require $300 per square foot in “inducements,” such as tenant improvements and free rent, whenever space turns over.
Apartments, Roth wrote, require “merely a paint job, and then new appliances every ten years or so.”
Vornado owns apartment development sites around Penn Station and 50% of one in Tribeca called Independence Plaza.
